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Stratus Properties Inc. Reports First-Quarter 2019 Results

AUSTIN, Texas–(BUSINESS WIRE)–Stratus Properties Inc. (NASDAQ: STRS), a diversified real estate
company engaged primarily in the acquisition, entitlement, development,
management, operation and sale of commercial, and multi-family and
single-family residential real estate properties, real estate leasing,
and the operation of hotel and entertainment businesses located in the
Austin, Texas area and other select, fast growing markets in Texas,
today reported first-quarter 2019 results.

Highlights:

  • Completed the sale of a retail pad subject to a ground lease
    located in the Circle C community for $3.2 million.
  • Sold three single-family residential properties for a total of $2.8
    million, including two Amarra Drive Phase III lots and one Amarra
    Villas townhome
    . Since the end of first-quarter 2019, Stratus
    closed on the sale of the last completed Amarra Villas townhome and
    two Amarra Drive Phase III lots for a total of $2.8 million. As of May
    3, 2019, eight Amarra Drive Phase III lots were under contract.
  • Received $4.6 million of bond proceeds related to Travis County
    municipal utility district (MUD) reimbursements of infrastructure
    costs incurred for development of Barton Creek.
  • Modified Amarra Villas credit facility to increase loan amount
    from $8.0 million to $15.0 million and extend maturity for three years
    through March 2022.
  • Finalized the New Caney H-E-B, L.P. (HEB) grocery store lease
    and acquired HEB’s interests in the New Caney partnership for
    approximately $5 million.
  • Completed construction of Santal Phase II, a 212-unit
    multi-family project located directly adjacent to the previously
    completed Santal Phase I, a 236-unit multi-family project, in
    Barton Creek. As of March 31, 2019, 78 percent of the Phase II units
    were leased and Santal Phase I was stabilized. Stratus is actively
    exploring options to sell or refinance the combined 448-unit Santal
    property.
  • Construction of Kingwood Place, an HEB-anchored, mixed-use
    project, is progressing on schedule and on budget and the retail space
    was 79 percent leased as of March 31, 2019. The HEB grocery store is
    currently anticipated to open in November 2019.
  • Construction of The Saint Mary, a 240-unit luxury garden-style
    apartment project in the Circle C community, is currently ahead of
    schedule and on budget. The first units are expected to be delivered
    by the end of May 2019 and project completion is expected in
    fourth-quarter 2019.
  • Stratus’ total stockholders’ equity was $124.0 million at
    December 31, 2018, compared with $127.3 million at December 31, 2017.
    As reported in its filing with the United States (U.S.) Securities and
    Exchange Commission (SEC) on March 27, 2019, Stratus’ after-tax Net
    Asset Value (NAV)
    increased to $326.1 million, or $39.58 per
    share, as of December 31, 2018, compared with $314.0 million, or
    $38.08 per share, as of December 31, 2017. The increase in the
    after-tax NAV was primarily driven by development activity at the
    Santal Phase II, The Saint Mary, Lantana Place, Kingwood Place,
    Magnolia and Jones Crossing projects. For additional information
    regarding NAV, see “Cautionary Statement,” and supplemental pages VI
    and VII, which are available on Stratus’ website,
    “stratusproperties.com.”

William H. Armstrong III, Chairman, President and Chief Executive
Officer, stated, “Capitalizing on the momentum achieved in 2018, our
first-quarter results demonstrate that we continue to successfully
implement our development plan. Development and leasing of our mixed-use
projects, including Jones Crossing, West Killeen Market, Lantana Place
and Kingwood Place, are progressing towards stabilization. We are very
pleased with the leasing of our Santal II multi-family project, which is
nearing stabilization. We are actively exploring options to sell or
refinance the combined 448-unit Santal property. We believe that our
steady progress in developing and leasing our projects is reflected in
our annual after-tax net asset value which increased to $326 million as
of December 31, 2018, up from $314 million as of December 31, 2017. We
expect steady momentum to continue throughout 2019 and we look forward
to creating value for shareholders.”

First-Quarter 2019 Financial Results

Stratus reported net income attributable to common stockholders of $0.9
million, $0.10 per share, in first-quarter 2019, compared to a net loss
attributable to common stockholders of $1.9 million, $0.23 per share, in
first-quarter 2018. Stratus’ first-quarter 2019 revenues totaled $19.7
million, compared with $17.8 million for first-quarter 2018. The
increase in revenues in first-quarter 2019 primarily reflects higher
revenues from single-family residential property sales and increased
revenues associated with execution of new leases for recently completed
properties, partly offset by reduced hotel group business and
entertainment event attendance.

Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) totaled $0.8 million in first-quarter 2019, compared with
$1.0 million in first-quarter 2018. For a reconciliation of net income
(loss) attributable to common stockholders to Adjusted EBITDA, see the
supplemental schedule on page V, “Adjusted EBITDA,” which is available
on Stratus’ website.

   

Summary Financial Results

 
Three Months Ended March 31,
2019     2018
(In Thousands, Except Per Share Amounts)

Revenues

Real Estate Operations $ 2,953 $ 1,202
Leasing Operations 3,859 2,255
Hotel 8,372 9,394
Entertainment 4,825 5,259
Eliminations and other (311 ) (345 )
Total consolidated revenue $ 19,698   $ 17,765  

Operating income (loss)

Real Estate Operations $ 2,846 $ (425 )
Leasing Operations 2,421 432
Hotel 774 1,461
Entertainment 824 735
Corporate and other (3,222 ) (3,106 )
Total consolidated operating income (loss) $ 3,643   $ (903 )
 
Net income (loss) attributable to common stockholders $ 862 $ (1,870 )
 
Diluted net income (loss) per share $ 0.10 $ (0.23 )
 
Adjusted EBITDA $ 816 $ 1,047
 
Capital expenditures and purchases and development of real estate
properties
$ 32,741 $ 27,988
 
Diluted weighted-average shares of common stock outstanding 8,213 8,137
 

The increase in revenue from the Real Estate Operations segment
in first-quarter 2019, compared to first-quarter 2018, primarily
reflects higher revenues from the sale of an Amarra Villas townhome in
first-quarter 2019. During first-quarter 2019, Stratus sold two Amarra
Drive Phase III lots and one Amarra Villas townhome for a total of $2.8
million, compared with the sales of one Amarra Drive Phase II lot and
one Amarra Drive Phase III lot for $1.2 million during first-quarter
2018. The increase in first-quarter 2019 operating income also reflects
$3.4 million of bond proceeds related to Travis County MUD
reimbursements of infrastructure costs incurred for development of
Barton Creek, which were recorded as a reduction of cost of sales. Since
the end of first-quarter 2019, Stratus closed on the sale of the last
completed Amarra Villas townhome and two Amarra Drive Phase III lots for
a total of $2.8 million. As of May 3, 2019, eight Amarra Drive Phase III
lots were under contract.

The increase in revenue from the Leasing Operations segment in
first-quarter 2019, compared to first-quarter 2018, primarily reflects
the commencement of new leases at Stratus’ recently completed projects,
including Lantana Place, Jones Crossing and Santal Phase II. The
increase in operating income during first-quarter 2019, compared to
first-quarter 2018, primarily reflects the recognition of a $2.1 million
gain in first-quarter 2019 on the sale of a retail pad subject to a
ground lease located in the Circle C community.

The decreases in revenue and operating income from the Hotel
segment in first-quarter 2019, compared to first-quarter 2018, primarily
reflect reduced group business and lower food and beverage sales in
first-quarter 2019. Revenue per available room (RevPAR), which is
calculated by dividing total room revenue by the average number of total
rooms available, was $238 in first-quarter 2019, compared with $262 for
first-quarter 2018. While Stratus remains positive on the long-term
outlook of the W Austin Hotel based on continued population growth and
increased tourism in the Austin market, a continued increase in
competition resulting from the anticipated opening of additional hotel
rooms in downtown Austin during the remainder of 2019 and 2020 may have
an ongoing impact on Stratus’ hotel revenues.

The decreases in revenue and operating income from the Entertainment
segment in first-quarter 2019, compared to first-quarter 2018, primarily
reflect lower event attendance at the ACL Live venue. ACL Live hosted 64
events and sold approximately 49 thousand tickets in first-quarter 2019,
compared with 57 events and the sale of approximately 55
thousand tickets in first-quarter 2018. Additionally, 3TEN ACL Live,
hosted 50 events and sold approximately 5 thousand tickets in
first-quarter 2019, compared with 49 events and the sale of 5 thousand
tickets in first-quarter 2018.

Debt and Liquidity

At March 31, 2019, consolidated debt totaled $320.9 million and
consolidated cash totaled $19.0 million, compared with consolidated debt
of $295.5 million and consolidated cash of $19.0 million at December 31,
2018.

In March 2019, Stratus entered into a loan agreement with Comerica Bank
to modify, increase and extend Stratus’ Amarra Villas credit facility,
which was scheduled to mature on July 12, 2019. The new loan agreement
provides for an increase in the revolving credit facility from $8.0
million to $15.0 million and an extension of the maturity date from July
12, 2019, to March 19, 2022.

Also, in March 2019, a Stratus subsidiary entered into a $5.0 million
land loan with Texas Capital Bank. Proceeds from the loan were used to
fund the acquisition of HEB’s portion of the New Caney partnership in
which Stratus and HEB purchased a tract of land for the future
development of an HEB-anchored, mixed-use project in New Caney, Texas.

Purchases and development of real estate properties (included in
operating cash flows) and capital expenditures (included in investing
cash flows) totaled $32.7 million for first-quarter 2019, primarily
related to the development of The Saint Mary, Kingwood Place and Santal
Phase II projects. This compares with $28.0 million for first-quarter
2018, primarily for the development of Lantana Place, Jones Crossing and
Barton Creek properties, which include Santal Phase II.

Conference Call Information

Stratus will conduct an investor conference call to discuss its
unaudited first-quarter 2019 financial and operating results today,
May 10, 2019, at 11:00 a.m. ET. The public is invited to listen to the
conference call by dialing (877) 418-4843 for domestic access and (412)
902-6766 for international access. A replay of the conference call will
be available at the conclusion of the call for five days by dialing
(877) 344-7529 domestically and by dialing (412) 317-0088 for
international access. Please use replay ID: 10130736. The replay will be
available on Stratus’ website at stratusproperties.com until May 15,
2019.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND
REGULATION G DISCLOSURE.

This press release contains forward-looking statements in which
Stratus discusses factors it believes may affect its future performance.
Forward-looking statements are all statements other than statements of
historical fact, such as statements regarding projections or
expectations related to the planning, financing, development,
construction, completion and stabilization of Stratus’ development
projects, plans to sell or refinance properties (including, but not
limited to, Amarra Drive lots, Amarra Villas townhomes, West Killeen
Market, the retail building at Barton Creek Village, The Saint Mary, and
Santal), operational and financial performance, expectations regarding
future cash flows, MUD reimbursements for infrastructure costs,
regulatory matters, leasing activities, estimated costs and timeframes
for development and stabilization of properties, liquidity, tax rates,
the impact of interest rate changes, capital expenditures, financing
plans, possible joint venture, partnership, strategic relationships or
other arrangements, Stratus’ projections with respect to its obligations
under the master lease agreements entered into in connection with the
sale of The Oaks at Lakeway in 2017, other plans and objectives of
management for future operations and development projects, future
dividend payments and share repurchases. The words “anticipates,” “may,”
“can,” “plans,” “believes,” “potential,” “estimates,” “expects,”
“projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be”
and any similar expressions are intended to identify those assertions as
forward-looking statements.

Under Stratus’ loan agreements with Comerica Bank, Stratus is not
permitted to pay dividends on common stock without Comerica Bank’s prior
written consent. The declaration of dividends is at the discretion of
Stratus’ Board of Directors (Board), subject to restrictions under
Stratus’ loan agreements with Comerica Bank, and will depend on Stratus’
financial results, cash requirements, projected compliance with
covenants in its debt agreements, outlook and other factors deemed
relevant by the Board.

Stratus cautions readers that forward-looking statements are not
guarantees of future performance, and its actual results may differ
materially from those anticipated, expected, projected or assumed in the
forward-looking statements. Important factors that can cause Stratus’
actual results to differ materially from those anticipated in the
forward-looking statements include, but are not limited to, Stratus’
ability to refinance and service its debt, the availability and terms of
financing for development projects and other corporate purposes,
Stratus’ ability to enter into and maintain joint venture, partnership,
strategic relationships or other arrangements, Stratus’ ability to
effect its business strategy successfully, including its ability to sell
properties at prices its Board considers acceptable, Stratus’ ability to
obtain various entitlements and permits, a decrease in the demand for
real estate in the Austin, Texas area and other select markets in Texas
where Stratus operates, changes in economic, market and business
conditions, reductions in discretionary spending by consumers and
businesses, competition from other real estate developers, hotel
operators and/or entertainment venue operators and promoters, challenges
associated with booking events and selling tickets and event
cancellations at Stratus’ entertainment venues, the termination of sales
contracts or letters of intent due to, among other factors, the failure
of one or more closing conditions or market changes, Stratus’ ability to
secure qualifying tenants for the space subject to the master lease
agreements entered into in connection with the sale of The Oaks at
Lakeway in 2017 and to assign such leases to the purchaser and remove
the corresponding property from the master leases, the failure to
attract customers or tenants for its developments or such customers’ or
tenants’ failure to satisfy their purchase commitments or leasing
obligations, increases in interest rates and the phase out of the London
Interbank Offered Rate, declines in the market value of Stratus’ assets,
increases in operating costs, including real estate taxes and the cost
of building materials and labor, changes in external perception of the W
Austin Hotel, changes in consumer preferences, industry risks, changes
in laws, regulations or the regulatory environment affecting the
development of real estate, opposition from special interest groups or
local governments with respect to development projects, weather-related
risks, loss of key personnel, cybersecurity incidents and other factors
described in more detail under the heading “Risk Factors” in Stratus’
Annual Report on Form 10-K for the year ended December 31, 2018, filed
with the U.S. SEC.

This press release also includes measures of Adjusted EBITDA and
after-tax NAV, which are not recognized under U.S. generally accepted
accounting principles (GAAP). Stratus believes these measures can be
helpful to investors in evaluating its business. Adjusted EBITDA is a
financial measure frequently used by securities analysts, lenders and
others to evaluate Stratus’ recurring operating performance. After-tax
NAV illustrates current embedded value in Stratus’ real estate, which is
carried on its GAAP balance sheet primarily at cost. Management uses
after-tax NAV as one of the metrics in evaluating progress on Stratus’
active development plan. Adjusted EBITDA and after-tax NAV are intended
to be performance measures that should not be regarded as more
meaningful than GAAP measures. Other companies may calculate these
measures differently. As required by SEC Regulation G, reconciliations
of Stratus’ net income (loss) attributable to common stockholders to
Adjusted EBITDA and Stratus’ after-tax NAV to total stockholders’ equity
in its consolidated balance sheet, are included in the supplemental
schedules of this press release.

Investors are cautioned that many of the assumptions upon which
Stratus’ forward-looking statements are based are likely to change after
the forward-looking statements are made. Further, Stratus may make
changes to its business plans that could affect its results. Stratus
cautions investors that it does not intend to update its forward-looking
statements more frequently than quarterly notwithstanding any changes in
its assumptions, business plans, actual experience, or other changes,
and Stratus undertakes no obligation to update any forward-looking
statements.

A copy of this release is available on Stratus’ website,
stratusproperties.com.

   

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

(In Thousands, Except Per Share Amounts)

 
Three Months Ended
March 31,
2019     2018
Revenues:
Real estate operations $ 2,948 $ 1,194
Leasing operations 3,629 2,004
Hotel 8,325 9,322
Entertainment 4,796   5,245  
Total revenues 19,698 17,765
Cost of sales:
Real estate operations 46 a 1,566
Leasing operations 2,139 1,182
Hotel 6,675 7,029
Entertainment 3,479 3,968
Depreciation 2,630   1,942  
Total cost of sales 14,969 15,687
General and administrative expenses 3,199 2,981
Gain on sale of assets (2,113 )  
Total 16,055   18,668  
Operating income (loss) 3,643 (903 )
Interest expense, net (2,572 ) (1,559 )
(Loss) gain on interest rate derivative instruments (59 ) 178
Loss on early extinguishment of debt (16 )
Other income, net 299   b 11  
Income (loss) before income taxes and equity in unconsolidated
affiliates’ loss
1,295 (2,273 )
Equity in unconsolidated affiliates’ loss (3 )
(Provision for) benefit from income taxes (433 ) 406  
Net income (loss) and total comprehensive income (loss) attributable
to common stockholders
$ 862   $ (1,870 )
 
Net income (loss) per share attributable to common stockholders
Basic $ 0.11   $ (0.23 )
Diluted $ 0.10   $ (0.23 )
 
Weighted average common shares outstanding:
Basic 8,167   8,137  
Diluted 8,213   8,137  

a.

 

Includes $3.4 million of municipal utility district (MUD)
reimbursements which were recorded as a reduction of cost of sales.

b.

Includes $283 thousand of interest income associated with MUD
reimbursements.

 
       

STRATUS PROPERTIES INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands)

 
March 31,
2019
December 31,
2018
ASSETS
Cash and cash equivalents $ 19,048 $ 19,004
Restricted cash 14,981 19,915
Real estate held for sale 17,523 16,396
Real estate under development 148,618 136,678
Land available for development 24,874 24,054
Real estate held for investment, net 265,816 253,074
Lease right-of-use assets 11,854 a
Deferred tax assets 11,543 11,834
Other assets 14,526   15,538  
Total assets $ 528,783   $ 496,493  
 
LIABILITIES AND EQUITY
Liabilities:
Accounts payable $ 23,943 $ 20,602
Accrued liabilities, including taxes 7,145 11,914
Debt 320,909 295,531
Lease liabilities 12,258 a
Deferred gain 8,984 9,270
Other liabilities 12,552   12,525  
Total liabilities 385,791   349,842  
 
Commitments and contingencies
 
Equity:
Stockholders’ equity:
Common stock 93 93
Capital in excess of par value of common stock 186,424 186,256
Accumulated deficit (40,241 ) (41,103 )
Common stock held in treasury (21,360 ) (21,260 )
Total stockholders’ equity 124,916 123,986
Noncontrolling interests in subsidiaries 18,076   b 22,665  
Total equity 142,992   146,651  
Total liabilities and equity $ 528,783   $ 496,493  

a.

 

Effective January 1, 2019, Stratus adopted a new accounting
standard that requires lessees to recognize most leases on the
balance sheet.

b.

Decrease represents Stratus’ purchase of H-E-B, L.P.’s
interests in the New Caney partnership.

 
   

STRATUS PROPERTIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

 
Three Months Ended
March 31,
2019     2018
Cash flow from operating activities:
Net income (loss) $ 862 $ (1,870 )
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 2,630 1,942
Cost of real estate sold 1,931 403
Gain on sale of assets (2,113 )
Loss (gain) on interest rate derivative contracts 59 (178 )
Loss on early extinguishment of debt 16
Debt issuance cost amortization and stock-based compensation 296 412
Equity in unconsolidated affiliates’ loss 3
Increase in deposits 108 205
Deferred income taxes 291 (504 )
Purchases and development of real estate properties (3,298 ) (3,612 )
MUD reimbursements applied to real estate under development 920
Increase in other assets (928 ) (822 )
Decrease in accounts payable, accrued liabilities and other (83 ) (4,963 )
Net cash provided by (used in) operating activities 691   (8,984 )
 
Cash flow from investing activities:
Capital expenditures (29,443 ) (24,376 )
Proceeds from sale of assets 3,170
Payments on master lease obligations (306 ) (388 )
Purchase of noncontrolling interest in consolidated subsidiary (4,589 )
Other, net   (30 )
Net cash used in investing activities (31,168 ) (24,794 )
 
Cash flow from financing activities:
Borrowings from credit facility 12,086 16,300
Payments on credit facility (12,911 ) (1,075 )
Borrowings from project loans 30,744 13,164
Payments on project and term loans (4,006 ) (563 )
Cash dividend paid for stock-based awards (17 )
Stock-based awards net payments (100 ) (203 )
Financing costs (209 )  
Net cash provided by financing activities 25,587   27,623  
Net decrease in cash, cash equivalents and restricted cash (4,890 ) (6,155 )
Cash, cash equivalents and restricted cash at beginning of year 38,919   39,390  
Cash, cash equivalents and restricted cash at end of period $ 34,029   $ 33,235  
 

STRATUS PROPERTIES INC.
BUSINESS SEGMENTS

Stratus currently has four operating segments: Real Estate Operations,
Leasing Operations, Hotel and Entertainment.

The Real Estate Operations segment is comprised of Stratus’ real estate
assets (developed for sale, under development and available for
development), which consists of its properties in Austin, Texas (the
Barton Creek community; the Circle C community, including The Saint
Mary; the Lantana community, including a portion of Lantana Place still
under development and vacant pad sites; and one condominium unit at the
W Austin Hotel & Residences); in Lakeway, Texas, located in the greater
Austin area (Lakeway); in College Station, Texas (a portion of Jones
Crossing still under development and vacant pad sites); in Killeen,
Texas (vacant pad sites at West Killeen Market); and in Magnolia, Texas
(Magnolia), Kingwood, Texas (Kingwood Place) and New Caney, Texas (New
Caney), located in the greater Houston area.

Contacts

Financial and Media Contact:
William H. Armstrong III
(512)
478-5788

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